Our stress-testing tool considers banks under stress that can strategically manage their balance sheets. Using confidential Canadian supervisory data, we assess whether bank behaviour to maximize shareholder value can amplify a hypothetical stress scenario.
In this analysis, we use simulations in the Bank of Canada’s projection model—the Terms-of-Trade Economic Model—to consider a suite of extended monetary policies to support the economy following the COVID-19 crisis.
The secular decline in real interest rates has created a challenge for monetary policy, now confronting the zero lower bound more often. An increase in the supply of safe assets reduces downward pressure on the natural interest rate. This allows monetary policy to reach price stability and full employment, but not without cost—permanently lower investment.
We show that changes in sentiment that aren’t related to fundamentals can drive persistent macroeconomic fluctuations even when all economic agents are rational. Changes in sentiment can also affect how fundamental shocks affect macroeconomic outcomes.
The BoC–BoE database of sovereign debt defaults, published and updated annually by the Bank of Canada and the Bank of England, provides comprehensive estimates of stocks of government obligations in default.
Firms with fewer than 100 workers employ about 65 percent of the total labour force in Canada. An online survey experiment was conducted with firms of this size in Canada in 2018–19. We compare the responses of small and micro firms to explore how their characteristics and economic outlooks relate to their size.
How does government licensing affect selling on online platforms? We examine the impact of China’s 2015 Food Safety Law on sellers and buyers on Alibaba, the largest e-commerce platform in that country.
Both supply and demand factors help determine the level of business lending in the economy, but most data show only their combined effect on prices and quantities. Using the Bank of Canada’s Senior Loan Officer Survey microdata on financial institutions’ lending conditions and demand, we separate supply from demand effects.
How can macroprudential policy and monetary policy stabilize segmented credit markets? Is there a trade-off between financial stability and price stability? I use a theoretical model to evaluate the performance of alternative policies and find the optimal mix of macroprudential and monetary policy in response to aggregate shocks.
ToTEM III is the most recent generation of the Bank of Canada’s main dynamic stochastic general equilibrium model for projection and policy analysis. The model helps Bank staff tell clear and coherent stories about the Canadian economy’s current state and future evolution.